Winklevoss twins create fund to trade Bitcoins on stock market

Twins seek to become moguls; will sell $20M of "Digital Math-Based Assets."

Cameron and Tyler Winklevoss, whose legal feud with Facebook was famously depicted in the movie The Social Network, are bullish on Bitcoin.

A few months ago, shortly after a major Bitcoin pricespike, the twins revealed they owned about one percent of all Bitcoins in circulation. Such an investment was worth, at that time, around $11 million.

"We have elected to put our money and faith in a mathematical framework that is free of politics and human error," Tyler Winklevoss said at the time.

Now they're launching a venture meant to make it easy for the everyman investor to get a piece of the Bitcoin action. The Winklevosses have filed paperwork with the Securities and Exchange Commission revealing plans to sell $20 million of public stock in the Winklevoss Bitcoin Trust, an exchange-traded fund in which owning stock corresponds to owning a certain amount of Bitcoins.

On the first day of trading, one million shares will be sold, with each one expected to correspond to about 0.2 Bitcoins. Overall, shares in the Winklevoss Bitcoin Trust will track to a weighted average of Bitcoin prices, which they call the Blended Bitcoin Trust.

In their S-1 filing, the twins list all kinds of risk factors that investors may want to consider. Some of them state what's obvious to anyone following Bitcoin news: the currency is volatile, for instance. Others are more far-out possibilities that are nonetheless interesting to consider: Miners could become discouraged, the Bitcoin Network could be hacked into by a botnet, or the open-source Bitcoin software could be "forked" into a separate network, the Winklevoss Trust notes. Any of those developments could damage the value of Bitcoins or what they call "Digital Math-Based Assets." If the company goes public as planned, it would be the first Bitcoin-centric IPO in US markets.

This announcement comes at a time when the chief Bitcoin exchange, Mt. Gox, is under investigation by US federal law enforcement and has had some of its assets seized. Late last week, Mt. Gox finally registered with FinCEN, the US Treasury Department's anti-money-laundering regulator.

To think the government(s) won't fight like hell to preserve their own monopoly on currency and power is a bit naive. I am about as pro-competitive currencies as they come, but damn, if the Justice Department can flex their muscles just a little and break anonymous banking at UBS how can we expect anything different with bitcoin which waayyyyyy more threatens government power. Bit premature me thinks.

I fail to see how this is different than just owning Bitcoins. Sure, the prices will be a lot lower, but isn't this like someone owning 1% of Apple, then allowing people to trade parts of their shares at a lower price?

I fail to see how this is different than just owning Bitcoins. Sure, the prices will be a lot lower, but isn't this like someone owning 1% of Apple, then allowing people to trade parts of their shares at a lower price?

If it's an ETF, you can buy and sell shares and profit from Bitcoin without needing to actually own Bitcoins.

I fail to see how this is different than just owning Bitcoins. Sure, the prices will be a lot lower, but isn't this like someone owning 1% of Apple, then allowing people to trade parts of their shares at a lower price?

It makes it cheaper to own bitcoins, but it also allows shorting and other market manipulation.

To think the government(s) won't fight like hell to preserve their own monopoly on currency and power is a bit naive. I am about as pro-competitive currencies as they come, but damn, if the Justice Department can flex their muscles just a little and break anonymous banking at UBS how can we expect anything different with bitcoin which waayyyyyy more threatens government power. Bit premature me thinks.

These kind of posts are just attempts to aggrandize BC. The government isn't trying to outlaw BCs; most of what the government has done is find ways to accommodate existing laws to BC, including the same reporting requirements that would apply to any other currency.

It sounds (without doing too much research into it) like any sort of "commodity backed certificates" - though it may take the form of more of a "shares of a bitcoin pool" form. Either way, as long as they're upfront about what they're doing and don't get too creative (such as claims that the total issued amount of gold and silver certificates far exceed the actual amount on the planet), I'm not certain how you get scam out of it.

So maybe this is a good thing for some people, could work out OK, etc... but nevertheless something about this just screams "rich guys with connections trying to take advantage of new thing while claiming to benefit the everyman" ... but then again, that's what business is all about, isn't it?

Bitcoins are intrinsically deflationary - which encourages people to hoard their bitcoins rather than invest them. And if the bitcoin economy does grow, the most wealthy people are the ones who benefit from it.

Also, there's a huge amount wasted resource in the 'mining' of the bitcoins, which is effectively useless busy-work. The global cost of mining can only increase over time - it can't even be reduced by people inventing more efficient technology, because the bitcoin system is designed to automatically make the job of mining harder as more people and resources are put into it.

It would be a bad thing if bitcoin were to gain significant traction as a currency.

I say let the Winklevoss twins keep their barren land. I don't want to buy into that.

Ars keeps going on about bitcoin, but you don't even accept bitcoin payments for your own premier subscriptions. None of the big retail sites or big service providers seem to care about bitcoin and I don't see anyone clamoring for their adoption. All I see are the same bunch of people hiding their bitcoins under their virtual floorboards, getting them out occasionally to look at them. Bitcoin growth should be exponential if it stands the slightest chance defending itself from the tidal wave of challenges.

I fail to see how this is different than just owning Bitcoins. Sure, the prices will be a lot lower, but isn't this like someone owning 1% of Apple, then allowing people to trade parts of their shares at a lower price?

It makes it cheaper to own bitcoins, but it also allows shorting and other market manipulation.

What do you mean? There's no cost associated with owning bitcoins.

Or do you mean that 1BTC costs over 100USD? Bitcoins have fractions, so there's really nothing stopping someone from purchasing 0.01BTC for example, though that's a fairly modest investment obviously.

I don´t think its possible to buy 0.01BTC. Most people selling their BT, would be selling them at a minimum, best 0.25, but probably more than that.

As far as I see, the Microunits of Bitcoins seems to be failing in their purpose because 21 millions is just not enough for a global economy. At least never saw anything priced at micro units yet. Name would be confusing as bitcoins get more value and units gets smaller.

Ars could accept Bitcoins via BitPay and not take the risk of losing in the speculation of the currency. Maybe they will do in the future, since they seem to be so Bitcoin friendly, but I would assume they just write about them because it gets tons of comments and feedback. Geeks just like Bitcoins and Ars is a geek magazine.

I´m not sure how I feel about the Winklevos funds. Why would you buy shares with them, if you can invest directly in owning bitcoins? If that is what you want at least, nothing stops someone from putting their money directly in Bitcoins. It makes no sense to pay someone else to hold stocks on bitcoins they own.

If they instead are providing something of value, like putting your bitcoins to work, or giving a % margin of interest, or something extra of value it could make sense. Otherwise im not sure, you buy shares for a fund that holds bitcoins? Actually they would be the only ones holding bitcoins, not you.

They should rather do something better with their bitcoins rather than just holding them. Holding bitcoins is like holding money, the more people do it, the less bitcoins will be worth. Bitcoins prices will only go up if they are on the move, they need people buying and selling them.

It sounds (without doing too much research into it) like any sort of "commodity backed certificates" - though it may take the form of more of a "shares of a bitcoin pool" form. Either way, as long as they're upfront about what they're doing and don't get too creative (such as claims that the total issued amount of gold and silver certificates far exceed the actual amount on the planet), I'm not certain how you get scam out of it.

It's called an inherent lack of trust. Past experience plays a lot.

As for "as long as their up front about what their doing......", uhm, the entire point of a scam is you don't know they aren't. Which goes back to trust, or a lack thereof.

It makes it cheaper to own bitcoins, but it also allows shorting and other market manipulation.

What do you mean? There's no cost associated with owning bitcoins.

Sure there are. There are transaction costs associated with trading on Mt Gox or other sites. If you hold bitcoins yourself, there's the risk that they'll get stolen (which is an economic cost). If you keep them in a site like Mt Gox, there's the risk that they'll suspend withdrawals.

It's gotten to the point where the only people who care about bitcoin are those either holding them or mining them, and everyone else has realized it's a strange little community has has somehow chosen to place value on something even less tangible than monopoly money. The barrier to entry for mining is so high that no one new to the system is bothering, and the value is slowly slipping (looks like ~$90/BTC this morning), so it seems like a silly investment to purchase them, as they haven't fallen by crash, but by steady decline.

Winklevoss's prime motivation here is to shore up the value so their own investment retains and hopefully gains value, but there's no structure holding up the inherent USD-backed value, so they're trying to create one, but I don't see any reason to invest in their system when anyone who actually wants to own these can simply buy them on the open market just as easily. Besides, if they essentially put 200,000 BTC up for sale, they're going to deflate the value even further. It's such a risky investment, only the true believers are crazy enough to buy (if anyone).

It's fun to sit back and watch, but this thing is slowly collapsing, and those who own bitcoins are doing whatever they can to try to PR-boost the concept so their own holdings don't collapse to complete worthlessness.

It sounds (without doing too much research into it) like any sort of "commodity backed certificates" - though it may take the form of more of a "shares of a bitcoin pool" form. Either way, as long as they're upfront about what they're doing and don't get too creative (such as claims that the total issued amount of gold and silver certificates far exceed the actual amount on the planet), I'm not certain how you get scam out of it.

They're shady operators. Perhaps not an outright "scam", it's not a confidence scheme, but they're not known for their brilliance in investment opportunities (past their initial "luck"). If they weren't born rich, I'm sure they'd be MLM hucksters.

Ars keeps going on about bitcoin, but you don't even accept bitcoin payments for your own premier subscriptions. None of the big retail sites or big service providers seem to care about bitcoin and I don't see anyone clamoring for their adoption. All I see are the same bunch of people hiding their bitcoins under their virtual floorboards, getting them out occasionally to look at them. Bitcoin growth should be exponential if it stands the slightest chance defending itself from the tidal wave of challenges.

Simple. Bitcoin is a fascinating novelty, not something Ars has any interest in pursuing. Hence the stories but no need to invest for such a poor set of returns.

Also, there's a huge amount wasted resource in the 'mining' of the bitcoins, which is effectively useless busy-work

The same is true of gold. A whole industry is built around expending otherwise-productive resources to extract it from the ground, purify it and form it into bars, so those bars can then sit around in vaults being owned by someone. The joy of fiat currency is that it fulfills the role of "currency" while expending as few resources as possible in the making of it.

Also, there's a huge amount wasted resource in the 'mining' of the bitcoins, which is effectively useless busy-work

The same is true of gold. A whole industry is built around expending otherwise-productive resources to extract it from the ground, purify it and form it into bars, so those bars can then sit around in vaults being owned by someone. The joy of fiat currency is that it fulfills the role of "currency" while expending as few resources as possible in the making of it.

Admittedly gold does have additional non-currency uses, and has a much longer history as a currency than Bitcoins.

I would be shocked if the SEC grants approval. The anonymous nature of the Bitcoin transaction flies in the face of established AML policies. Even as Mt Gox registers as a currency exchange for the dollar side of the transactions, they do not have any way to tie the bitcoin transactions effectively together.

To allow a stock to go public whose stated business purpose is to invest in such a grey legal area wouldn't make much sense.

Then again, I was shocked all through the early 2000's as CDO/CMOs based on significant holdings in sub-prime took off.

They want people to invest in their supply of bit coins? So, if suddenly 1 year from now, btc just drops to 5USD, I'm out X amount but they are safe because I paid for their btc? That's just what I get from this venture. They realize they dropped 11 mil on a volatile currency, don't want to cash out because it may still do well, but don't want to explicitly maintain their own funds in it as it may fall apart through any of several different ways: government regulations, peoples interest dropping off, etc...

Seriously, these guys' only talent seem to be coming up with one get-rich-quick scheme after another. None of which, to date, have been successful. I do not predict a long or happy life for these two. Of course, I'll be wrong, this kind always seems to rise up out of the swamp, smelling like roses, with a goofy smile on their faces.

They realize they dropped 11 mil on a volatile currency, don't want to cash out because it may still do well, but don't want to explicitly maintain their own funds in it as it may fall apart through any of several different ways: government regulations, peoples interest dropping off, etc...

I'm a little surprised. I thought the next time we'd hear about the Winklevoss twins and Bitcoin it would be an announcement that they'd seen the light, divested themselves of all bitcoins and so long suckers.

However, I was wondering how they were going to get rid of the things, given how many they had. Doing it through the exchanges would have been agonisingly slow, to avoid dragging the price down. Clearly, they couldn't find another rich investor for a private sale.

I doff my hat to the Winklevii. Bitcoin shares is a cunning plan. If you can't find a few big investors gullible enough, how do you efficiently sell to lots of little investors off-exchange?

How about we fork the Bitcoin code and start a new network. The new network won't track the ownership of bitcoins, but the ownership of Bitcoin shares!

To think the government(s) won't fight like hell to preserve their own monopoly on currency and power is a bit naive. I am about as pro-competitive currencies as they come, but damn, if the Justice Department can flex their muscles just a little and break anonymous banking at UBS how can we expect anything different with bitcoin which waayyyyyy more threatens government power. Bit premature me thinks.

To think they actually care about Bitcoin is naive. But people like you have to believe that the big, bad government is out to get you, otherwise you don't have anything to justify your persecution complex.

They realize they dropped 11 mil on a volatile currency, don't want to cash out because it may still do well, but don't want to explicitly maintain their own funds in it as it may fall apart through any of several different ways: government regulations, peoples interest dropping off, etc...

However, I was wondering how they were going to get rid of the things, given how many they had. Doing it through the exchanges would have been agonisingly slow, to avoid dragging the price down. Clearly, they couldn't find another rich investor for a private sale.

I doff my hat to the Winklevii. Bitcoin shares is a cunning plan. If you can't find a few big investors gullible enough, how do you efficiently sell to lots of little investors off-exchange?

Precisely my thoughts: This is an elegant way to get rid off those Bitcoins while at the same time still participating when the price goes up as surely (like in any other fund) they will get a percentage as management and/or performance fee.

To think the government(s) won't fight like hell to preserve their own monopoly on currency and power is a bit naive. I am about as pro-competitive currencies as they come, but damn, if the Justice Department can flex their muscles just a little and break anonymous banking at UBS how can we expect anything different with bitcoin which waayyyyyy more threatens government power. Bit premature me thinks.

These kind of posts are just attempts to aggrandize BC. The government isn't trying to outlaw BCs; most of what the government has done is find ways to accommodate existing laws to BC, including the same reporting requirements that would apply to any other currency.

But yet again how is it possible to regulate a decentralized protocol such as p2p? Nothing to do with aggrandization, fanaticism or pride but personal respect and privacy over what the people want. It seems that you'd think the government is ran by completely honest founding fathers of yester-years to regulate to the up most fairness, which ain't gonna happen.

It sounds (without doing too much research into it) like any sort of "commodity backed certificates" - though it may take the form of more of a "shares of a bitcoin pool" form. Either way, as long as they're upfront about what they're doing and don't get too creative (such as claims that the total issued amount of gold and silver certificates far exceed the actual amount on the planet), I'm not certain how you get scam out of it.

It's called an inherent lack of trust. Past experience plays a lot.

Um.

What have they done in the past to demonstrate being untrustworthy?

Yes, they were involved in a legal dispute with Facebook. Given the shady behaviour of facebook with regards to user privacy, repeatedly - what makes you think that they're the bad guys, and not Zuckerberg?